Suppose that you are considering investing in one of two companies, each in the same industry. The most recent income statements for each company and other relevant information are as follows:

Required:
Round answers to two decimal places.
1. Compute the following for each company: (a) earnings per share, (b) dividend yield, (c) dividend payout ratio, (d) price-earnings ratio, (e) return on assets, and (f) return on stockholders' equity.
2. Conceptual Connection: In which of the two companies would you invest? Explain.

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Income Statements in thousands Fasnacht Company $ 40,000 14,000 McGregor Company $50,000 30,000 20,000 15,000 Sales Less: Cost of goods sold Less: Selling and administrative expenses Less: Interest expense Less: Income taxes Retained eamings Less: Dividends 26 Gross margin Operating income Income before taxes Net income 1,000 4,000 1,360 2,640 8,000 $ 10,640 840 9,800 4,000 2,640 6,000 $ 8,640 1,040 7,600 Ending retained earnings Average total assets Average common equity Average common shares Average preferred shares* Market price per common share $20,000,000 $10,000,000 1,000,000 shares 300,000 shares $5.00 $22,000,000 $13,000,000 1,200,000 shares 100,000 shares $9.80 For both McGregor and Fasacht, the preferred dividend is $1 per share.